Look for a modest upgrade to the assessment of the labor market in light of the last jobs report, but little or no change to the growth outlook.

The focus will be on the inflation language and whether and how the Committee signals a balance sheet announcement in September.

Inflation: A Nod Toward Weakness

The June statement wasalready adjusted in several ways to recognize the weakness in inflation, so don’t expect major changes to the inflation language. The market doesn't need a wake-up call on this issue, especially after Chair Yellen’s testimony last week.

Since the June meeting, Yellen’s public comments have turned more dovish. At the June press conference she was relatively dismissive of one-off factors “significantly” influencing recent inflation reports, whereas in her testimony she referred to them as “partly” responsible.

There’s a good chance that "somewhat" may drop out from the first paragraph’s "has been running somewhat below 2%.” Core PCE inflation has dropped below 1.5% for the first time since 2015, which seems noteworthy.

Expect "somewhat" to remain in the second paragraph. The Committee will hold onto whatever hope it can muster for as long as is credible, and next week’s revisions to the GDP report could see a modest upward revision to inflation data.

Balance Sheet: Positioning for a September Announcement

Yellen’s comment that “the exact timing doesn’t really matter” suggests September is in the crosshairs, although it leaves some minority probability of a July announcement. It all depends on what the Fed thinks the market expects, and most market chatter seems to focus on September. If the timing doesn't matter, why risk anything with an earlier announcement? The Committee has spent over four years tiptoeing around the market about its normalization plans, and now would be an odd time to deliver a surprise. Their view (or hope) may be that the precise timing will not matter for the economy, but that doesn't mean it won't matter to the market.

Regarding the July option, many have noted the “within a couple of months” language in the minutes of the June meeting, but it’s important to note that that was the preference of only “several participants.” We don’t have any indication that that view has become more widespread, and the June minutes didn’t note any particular concern about the looming debt ceiling debate beyond the prior language about fiscal uncertainty.

Despite protestations in years past about every meeting being a live one, the Fed has consistently limited major announcements (even of policy normalization plans) to its quarterly meetings. While the Yellen Fed may like the principle of every meeting being live, they haven't shown any desire to prove the point. This would be a strange occasion to do so, since this principle has been notably absent from recent Fedspeak. Even if the Fed doesn’t plan on “revisiting [the reinvestment policy] on a regular basis," as Yellen indicated last week, presumably the Chair would appreciate retaining the option to comment on any market developments at future quarterly meetings – just in case.

"Relatively soon" and "at the next meeting" replacing “this year” (fifth paragraph) are the leading candidates for the hints about a September announcement. The Fed's wordsmiths have proved adept at finding novel phrasing when its suits them to do so, but again, this is a time for consolidating expectations, not disrupting them.